NZ Tower mulls the sum of its parts

Listed New Zealand insurer
Tower
is mulling over offers for its businesses following a strategic review designed to boost returns.

As foreshadowed in Street Talk yesterday, Tower announced it was weighing up “a number of proposals with interested parties". Tower has four business units, including life and health insurance, funds management and investments.

Tower’s managing director, Rob Flannagan, said the group had “outperformed the New Zealand market" after it split from Tower in Australia (now TAL) in 2006, but it was “the board’s view that more shareholder value could be created".

“The board is open to changing Tower’s business structure to improve the value achieved for shareholders, and is considering proposals including operational alliances and divestment of assets."

JP Morgan insurance analyst Siddharth Parameswaran said the update provided little new information. “It really comes down to if they can find buyers to pay a reasonable price for the assets. There’s still a bit of tension in the company," he said.

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Credit Suisse on Thursdaydowngraded Tower from neutral to underperform.

“Tower is less competitive as a stand-alone insurer, and following IAG’s acquisition of NZ insurer AMI there are limited options for Tower besides significantly improving the efficiency of the current business," analyst Andrew Adams said.

The comments come after Tower warned of a $NZ9.4 million ($7.4 million) profit downgrade for the year to September.

The group blamed 2011’s Christchurch earthquakes and ongoing uncertainty as key reasons.

Tower hiked its reinsurance cover to $NZ500 million per event following the earthquakes, but ongoing claims would “bring total claims and provisions over Tower’s $NZ325 million in cover", it said.

Mr Flannagan, however, stressed that Tower remained well capitalised with $NZ475 million of equity.